Sources say that Glencore's trading division is part of Rio Tinto's appeal in merger talks.
Two sources familiar with the matter claim that Rio Tinto wants to keep Glencore’s trading division, and would make it a?even stronger platform to sell commodities? if they can strike a deal to create the largest mining company in the world.
Rio Tinto announced that it is in the early stages of talks to purchase Glencore. This could lead to a company worth nearly $207 billion.
Analysts and investors believe that Rio's main focus is to gain access to Glencore copper resources.
The sources who spoke under 'condition of anonymity' because they weren't authorised to speak in public, said that Rio was keen to tap into the expertise?of Glencore Trading Division.
A $4 BILLION MARKETING Business?
Goldman Sachs estimates Glencore's business in marketing could be worth up to $4 billion by 2030. In the first half of 2013, it generated $1.4 billion before tax, interest and other expenses.
Glencore's Trading Division, which is renowned for capitalising on market volatility, made $6.4 billion in 2022 from the soaring commodities prices caused by disruptions to supply after Russia's invasion?of Ukraine.
Rio Tinto, a mining firm with more than 150 years of history, is first and foremost a mining company. But Bold Baatar who oversees Rio's Singapore commercial operations has ambitions to increase the trading activity of the company, according to one source.
TWO COMPANIES VERY DIFFERENT
Glencore is a global company that trades in coal, oil, natural gas, metals and liquefied gases. It also mines coal and produces cobalt, zinc and copper.
Rio Tinto is the largest iron ore producer in the world. It also has assets in copper, aluminum, and lithium.
The two companies have had previous failures in their talks, and any future deal would be subject to regulatory and other hurdles. The companies will have to sell assets at the very least in order to satisfy the competition authorities.
Rio Tinto has ceased coal production in 2018 in order to improve its ESG credentials. Glencore, however, retained its coal operations.
Derren Nathan is the head of equity research at Hargreaves Lansdown.
Rio does not release revenue or profit figures from its trading division.
It will be interesting to see how Rio views Glencore's marketing business. Richard Hatch, Berenberg analyst, said that the company could "look to keep or divest (Glencore's) marketing business".
"However we believe that the security of supply contracts would need to remain," he said. He was referring to long term agreements that guarantee reliable and consistent access to raw materials or commodity. (Reporting and editing by Veronica Brown, Barbara Lewis and Clara Denina)
(source: Reuters)
